Stocks & shares Isas: It pays to compare brokers

21/03/2014

Many investors use the same broker for both funds and other investments. But while it may seem simplest to do this, you could pay a high price for the convenience: brokers who offer a good deal for one type of investment are often far less competitive for others.

So we think it’s worth considering your portfolio in two parts: which broker is cheapest for your funds, and which is best for your shares, investment trusts and exchange-traded funds (ETFs).

That way you can tell how much extra it will cost you to use the same broker for both. If the difference is small, you may be happy to pay for the convenience – but if it makes a big difference, consider splitting your portfolio between different providers.

What your broker charges

Comparing costs for shares, investment trusts and ETFs is similar to the process outlined for funds. But there are more possibilities to consider, as shares attract extra charges that don’t usually apply to funds. Here are the most common.

Account fees

Many brokers levy an account fee to cover administration costs, typically either a flat-rate yearly charge or a flat-rate inactivity fee which is waived if you trade more than a certain number of times per month, quarter or year. Fees based on a percentage of the value of your portfolio are less common. Some providers who have brought these in for funds now charge for shares in the same way, but this is usually poor value. It’s still possible to get Isas with no account or custody fees for shares. These are usually the cheapest option, even after allowing for varying dealing costs.

Dealing fees

Traditional brokers charge a percentage of the total value of your trade, but almost all online brokers levy a flat fee per trade – typically £10 or so. Many also offer frequent trader discounts. Focus on the standard rate – frequent trader rates can be useful in some circumstances (for example, investing a large lump sum across several stocks), but if you regularly trade often enough to be eligible for discounts, there is probably a broker offering a more suitable fee model for you overall.

Regular investing and dividend reinvestment fees: both these types of special dealing rates can significantly cut costs if your broker offers them. Regular investing rates apply when you make scheduled monthly investments into pre-selected stocks. Dividend reinvestment rates apply when you automatically reinvest the dividends a company pays back into buying more of the same stock.

Corporate action charges

Some brokers charge for handling rights issues, stock splits and other corporate actions. Most investors will only encounter these events infrequently, so it may not make sense to give these fees too much weight.

Forex charges

If you deal in international shares, most brokers charge a significant commission for converting from sterling to foreign currency. This can be a huge drag on your returns, so watch out for it.

Make a shortlist

If you just want to find the lowest-cost option, the table below may help. It lists the standard dealing rates, regular charges and dividend reinvestment fees for a selection of Isas with either no annual fee or that are effectively fee-free under certain conditions. Some other brokers also have low charges, but for most investors, one of those below should be cheapest for UK shares, investment trusts and ETFs.

The cheapest Isas for shares, investments trusts and ETFs

Dealing commissions

Standard

Regular

Reinvest

Notes

AJ Bell Youinvest

£9.95

£1.50

n/a

–

Interactive Investor

£10

£1.50

1% (max £10)

Charges a £20 fee per quarter, but this gives you £20 of trades – so effectively fee-free if you trade 2+ times per quarter

iWeb Share Dealing

£5

n/a

2% (max £5)

Account opening fee of £25

SVS Securities

£5.75

n/a

n/a

£10 corporate action charge

TD Direct Investing

£12.50

£1.50

£1.50

Isa fee of £36 waived for accounts above £5,100 or where a regular investing plan is set up

Watch out for exit fees

If you plan to switch an existing Isa to another broker, the cost of doing so may come as an unpleasant surprise. Charges for transferring shares or funds to a new provider are typically around £15-£25 per holding, sending the total fee for a larger portfolio into the hundreds. Brokers justify these charges by arguing that transfers are a clunky, manual process involving a lot of staff time and paperwork; critics maintain that their main purpose is to discourage investors from moving. There are signs the regulator is planning to clamp down on excessive exit fees, so this may change in the future. Until then, if the amount your broker demands seems unreasonable, ask for a waiver or discount or see if your new provider will reimburse some of the costs.

Video Tutorials

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.Find out which one is best for you.